Pending Home Sales Return to Pre-Recession Highs

Pending Home Sales Return to Pre-Recession Highs

Posted 07/09/2013

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Pending home sales rose in the month of May, reaching the pre-crisis levels of 2006, according to the National Association of Realtors (NAR). The 6.7 percent May increase on the Pending Home Sales Index, a forward-looking indicator based on contract signings, has experts speculating that buyers want to take advantage of low mortgage interest rates before they climb any further.

Dr. Lawrence Yun, NAR chief economist, said the sharp rise in home sales is due in part to steady increases in job creation and household formation. However, Yun, who predicts a multi-year housing recovery, said a lack of inventory has prevented an even stronger growth.

Builders in areas like Las Vegas and Phoenix are scrambling to keep up with buyer demand as home inventories continue to fall. With land, labor and materials in short supply across the United States, almost 36 percent of new homes sold in May are still awaiting construction.

Existing home sales are forecasted to reach a seven-year high of just over 5 million this year, followed by steady increases in 2014 and 2015. With the market appearing sustainable, it looks like a busy future for homebuilders.

If there is one negative to the recent news, it’s that builders are becoming frustrated with the constraints and would love to build faster.

As for homebuilding’s impact on the economy as whole, Yun told a group of realtors in Washington, D.C., recently that all of the indicators point to a cumulative rise in home prices of 13 percent for 2013 and 2014, adding more than $2 trillion to household wealth over this period. 

Increased consumer confidence among home owners is just one area of many that may trigger an even further economic upswing.  Additional housing construction means more building-job creation and materials purchases, which in turn sparks hiring across the board for companies related to homebuilding.